Waters Corp. Reports Operating Results (10-Q)

Waters Corporation has a market cap of $7.03 billion; its shares were traded at around $75.4 with a P/E ratio of 16.2 and P/S ratio of 3.8. Waters Corporation had an annual average earning growth of 13.1% over the past 10 years. GuruFocus rated Waters Corporation the business predictability rank of 5-star.

Highlight of Business Operations:

Within cash flows used in investing activities, year-to-date capital expenditures related to property, plant, equipment and software capitalization were $47 million and $35 million in 2012 and 2011, respectively. The current years capital expenditures include $13 million of construction costs and the acquisition of a building in the United Kingdom associated with a multi-year project to consolidate certain existing primary MS research, manufacturing and distribution locations. In the first half of 2012, the Company acquired the net assets of its Israeli sales and service distributor for $6 million in cash and acquired all of the outstanding capital stock of Baehr Thermoanalyse GmbH (Baehr), a German manufacturer of a wide-range of thermal analyzers, for $12 million in cash, including the assumption of $1 million of debt. These acquisitions are expected to add approximately $10 million to annual sales and be slightly accretive to earnings in 2012.

Product sales for the quarter decreased 1% while year-to-date product sales decreased 3%. TA Divisions product sales grew 7% and 8% for the quarter and the year, respectively, while the Waters Division product sales declined 2% and 4%, respectively. The decreases in the Waters Division product sales for both the quarter and the year were attributable to delays in capital spending by our customers as a result of the weakness in global economic conditions and the weakening of the Euro and Indian rupee. Foreign currency translation decreased product sales by 4% for both the quarter and the year.

Waters instrument system sales (LC and MS) decreased 1% and 6% for the quarter and year, respectively. The declines in instrument systems sales were primarily attributable to delays in capital spending by our customers as a result of the weakness in global economic conditions and the weakening of the Euro and Indian rupee. Chemistry consumables sales decreased 3% and 1% in the quarter and year, respectively. These declines in chemistry consumables sales, excluding the effects of foreign currency translation, were primarily due to lower demand for HPLC columns, offset by stronger demand for UPLC columns. Waters Division service sales increased 4% and 6% in the quarter and year, respectively, due to increased sales of service plans and billings to a higher installed base of customers. Waters Division sales by product line for the current and prior year were approximately 51% for instrument systems, 18% for chemistry consumables and 31% for service.

Waters Division sales in the quarter decreased 10% in Europe, while sales increased 7% in the U.S., 2% in Asia and 8% in the rest of the world. Waters Division sales for the year increased 4% in the U.S. and 1% in Asia, while sales decreased 7% in both Europe and the rest of the world. The decline in Europes sales was due to an 8% and 6% negative effect of foreign currency translation in the quarter and year, respectively. U.S. sales were higher across all markets and Asia continued to experience double-digit sales growth rate in China. The decline in sales to the rest of the world is primarily due to lower demand from governmental and academic customers.

TAs sales were 8% and 9% higher in the quarter and year, respectively. Recent acquisitions added 3% to TAs quarter and year-to-date sales. Instrument system sales increased 7% in the quarter and 8% year-to-date. Instrument system sales represented approximately 75% of TAs sales in both the current and prior year. The increases were primarily a result of higher demand for instrument systems from TAs industrial customers, as well as revenue associated with the shipment of the new Discovery instrument systems. TA service sales increased 12% and 13% in the quarter and year, respectively, primarily due to increased sales of service plans and billings to a higher installed base of customers. Geographically, TAs sales for both the quarter and year increased in Asia, the U.S. and Europe, and declined in the rest of the world. The effect of foreign currency translation decreased Europes sales by 12% and 7% in the quarter and year, respectively.

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